Vitamin Price-Fixing Settlement Preliminary Approval Granted By Court

Preliminary approval of the $1.2 bil. settlement between direct vitamin purchasers and seven vitamin manufacturers is granted by D.C. federal court Judge Thomas Hogan in a Nov. 23 decision.

Simultaneously, Hogan denied a series of motions to intervene filed on behalf of Archer Daniels Midland and other plaintiffs who have intimated a desire to opt out of the settlement and have objected to the agreement's inclusion of a "most favored nations" clause.

The MFN clause stipulates if a plaintiff opts out of the class settlement to pursue independent litigation and subsequently receives a higher settlement, the class settlement would be upgraded to equal that alternative settlement.

The clause is designed to remain active for two years following the Nov. 3 filing of the motion for preliminary approval of the settlement between the class and vitamin makers Hoffmann-La Roche, BASF, Rhone-Poulenc Rorer, Hoechst Marion Roussel, Eisai, Takeda Chemical Industries and Daiichi Pharmaceuticals.

"The objecting parties argue that they should be granted the opportunity to intervene in this settlement because they allegedly would suffer an 'impairment of interest' due to the two-year [MFN] clause and what they term the 'absolute veto' power of class counsel in deciding whether any opt outs are in a materially different situation from the class and thereby not subject to this MFN clause," the decision states.

However, the right to intervene "is not warranted...if the applicant's interest is adequately represented by existing parties," the opinion adds. "In this case, the potential intervenors offered no evidence that class counsel are not adequately representing the interests of the class...[and] the law is clear that class counsel's obligations do not extend to opt-out plaintiffs."

Class counsel also responded that the MFN clause was an essential element to the parties even reaching a settlement. They contend it was the defendants who desired the "materially different" clause as an "escape hatch" to enable them to settle with plaintiffs that "both sides agreed were in a different situation from the class," the decision notes.

During a Nov. 22 hearing, Archer Daniels Midland counsel argued the firm presents a materially different situation than the class - a position previously denied by class counsel.

ADM feels its position is unique due to its role as a maker of vitamin pre-mixes, thereby suffering from both price inflation and a price squeeze as a result of the vitamin "cartel." ADM claims to have been knocked out of the pre-mix market as a result of manipulation by the defendants.

The potential opt-out plaintiffs also argued the duration of the MFN clause would deprive them of any meaningful opt-out rights, thus imposing "legal prejudice." They claim "it would be impossible for them to negotiate with the defendants on their own terms during the two-year duration...and that this would in effect force them to either remain in the class or to litigate this case to the end," the opinion notes.

While Judge Hogan admits the duration of the clause is unique, he adds "many aspects of this case are unprecedented, including the over $1 bil. recovery."

Although the court does not find any unreasonable prejudice inflicted on potential opt-out plaintiffs, Hogan says granting the motions to intervene "could unduly prejudice the settling parties by unnecessarily delaying their settlement." The court prefers to prevent any potential delay while still considering the objections of the independent plaintiffs by permitting them to participate as amici curiae.

"The pursuit of early settlement is a tactic that merits encouragement; it is entirely appropriate to reward expeditious and efficient resolution of disputes," the decision states.

Hogan notes preliminary approval should be granted if an initial evaluation does not disclose any obvious deficiencies or reasons to doubt its fairness. "The court cannot say that the clause is outside the realm of possible approval," he states. However, Hogan retains discretion "to consider and rule upon the proper scope and duration of the MFN clause."

The settlement calls for a payment of approximately $1.05 bil. to the class and about $122 mil. in lawyers' fees ("The Tan Sheet" Nov. 8, p. 11).

Implementation of the settlement would end the class action suit as it applies to the seven defendants. Most of the defendants have pleaded guilty to Department of Justice charges of price-fixing ("The Tan Sheet" Oct. 4, p. 12). The antitrust allegations have led to a barrage of litigation; approximately 49 cases are pending in federal courts, the decision states.